Developers build on trust

Residential property developers are ramping up their borrowing and starting to build projects in NSW – in stark contrast to industry commentary pointing to a slowdown in the sector.

Despite a weak market for detached houses, the NSW private sector began construction on 4099 apartments and townhouses in the March quarter. This is the highest number in five years, Australian Bureau of Statistics data reveals.

NSW is the only state where the number is rising and banks say they are lending more to developers. “The increase has been more in the last six months," said Westpac general manager of commercial lending in NSW, Steve Kemp.

Pockets of affordable land, cashed-up investors and a strong underlying demand for housing are some of the key factors propelling developers to consider projects, industry observers say.

Development loan approvals had doubled since 12 months ago but from a low base, Westpac said. Most loans were for projects priced under $15 million. “The housing under-supply is well understood now," Mr Kemp said. “We’ve seen significant inquiry rate from clients and non-clients. They’re doing small developments – a lot of people have been sitting on land."

Listed developer
Australand
Property Group has bought residential sites in Clemton Park in Sydney’s south and in Blacktown in the west this year.

Stockland
, another listed developer, has bought a site at East Leppington in the south-west and another at Maitland in the lower Hunter Valley. The company had a “strong sentiment" in Sydney’s affordable corridors and was already allocating more resources to NSW, managing director
Matthew Quinn
said at Stockland’s half-year results release earlier this year.

Other sales transactions include a $5.86 million residential development site at Pemulwuy, in Sydney’s west, bought by a private developer. It has development approval for 83 residential units to be built in five individual blocks.

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A commercial building at 176-178 Parramatta Road, Auburn – also in Sydney’s west – has sold for $1.23 million. The investor plans to lease the premises before looking at residential development options.

Tim Green Commercial agent John Romyn said “anything with a residential component" was sought after at present. Examples included warehouses to be converted into two or three terraces through to large sites bought by big developers.

Colliers International has sold $250 million worth of residential development land in Sydney this year. These are mostly smaller sites, with the strongest demand for those with development approval.

The sales did not necessarily translate into more building, Colliers’ development site sales agent Jonathon Canavan said. “People are getting such good prices for the land there isn’t the need to take the risk on development," he said.

“A lot of them are abandoned because they can’t get development applications through. The difficulty in obtaining approvals is restraining the supply side of the market."

The improving developer sentiment in NSW comes as Housing Industry Association figures show residential building activity is slow overall. Building approvals fell 18.5 per cent in Victoria and 15.6 per cent in NSW but increased by 1.2 per cent in Queensland and 3 per cent in Western Australia.

Australand executive general manager for residential,
Rod Fehring
, said earlier this year that Sydney was the exception as buyer sentiment remained subdued in WA and Queensland and inquiries had dropped in Melbourne.

Few doubt there is underlying demand for housing in NSW but the weak market has scared off some investors. Eastmark Holdings managing director Jay Park, for instance, has put his residential projects on hold, citing high land prices, infrastructure levies and lengthy planning processes.